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WTO Must Step in Before US-China Trade Feud Spirals out of Control

It is time for the World Trade Organization (WTO) to step in and
mediate the trade conflict between the United States and China that
threatens to spiral out of control.

With tariffs trumping tariffs, the on-again, off-again
negotiations between the two countries seem nowhere near a solution
to their trade tensions.

Even if the negotiations resume, it is uncertain how they can
progress, much less succeed, with the two sides so far apart and
with no neutral presence at the negotiating table devoted to trying
to bring the two countries together in a practical and workable
deal.

Before this commercial confrontation slows growth in both the
U.S. and China, before it spills over to cause grave harm to the
rest of the world economy and before it further unravels the
rule-based world trading system, the two disputing countries should
try an alternative means of finding common ground in a mutually
acceptable trade settlement — WTO mediation.

If Trump really wants a
trade solution, and not just a trade confrontation, what does he
have to lose by agreeing to mediation?

Both countries continue to file complaints against each other in
the WTO, but neither country seems to have noticed a little-used
provision in Article 5 of the WTO Dispute Settlement Understanding
that offers mediation as another option for resolving their trade
disputes without having to survive a legal showdown over such
sensitive issues as the meaning of the national security defense
for trade restrictions and the extent of what Trump and his
acolytes see as their sovereign right to impose trade restrictions
unilaterally.

Under WTO rules, mediation “may be requested at any time
by any party to a dispute.” It may be a prelude to filing a
legal complaint in the WTO, or it may occur simultaneously with WTO
litigation.

The U.S. and China can agree to have their trade dispute
mediated by anyone they choose, and they can structure and conduct
the mediation in any way they choose. Throughout mediation, they
will retain all their sovereign rights to decide entirely for
themselves whether they wish to agree to new, mediated terms for an
overall trade settlement.

As it is, the two countries have no basis for a settlement and
no mutual understanding of what might comprise a settlement. Most
recently, the United States insisted on inclusion in the “new
NAFTA” of a provision that requires Mexico and Canada to give
the U.S. three months’ notice before it begins negotiations
with a non-market economy, i.e., China.

Given such talk by the Trump administration, how can China think
this impasse is about legitimate U.S. trade concerns and not about
a Trump desire to contain the rise of China?

The Chinese do not understand Trump is acting contrary to what
they (and many in the U.S.) see as the true American economic
interest, and Trump and his trade team do not understand why the
Chinese are refusing to yield despite intensifying U.S.
pressure.

Unclear is what Trump wants for the United States. Is he seeking
a lower bilateral trade deficit, structural changes in
China’s state-driven economic policies or a trade wall that
will sever the close ties between the U.S. and Chinese economies?
Does he want all of the above? Or does he even know what he
wants?

Equally unclear is what China is willing to give: minimal
modifications in the protectionist parts of Chinese industrial
policies or more managed trade by a shift in Chinese purchases from
other foreign suppliers to U.S. suppliers?

Or is China willing to manage less of its trade and do more to
fulfill its claimed aim of freeing and enabling market forces,
which would be by far the best way to lift the Chinese people up
the ladder of global competitiveness?

Trump seems to think bullying China will work. It won’t.
China seems to think the election of a Democratic Congress in
November will change the view of the U.S. government toward trade
with China. It won’t. Both must think again.

To some, it may seem naïve to suggest mediation amid such
mounting acrimony. But in these fraught times, it falls upon those
who still seek a rational world to suggest rational solutions.

The fact that the two countries seem unlikely to call on the WTO
for help is not evidence that they should not do so. Nor is it
evidence that they will not do so if all else fails.

As any trade negotiator knows, to reach an artful trade deal,
both sides in a negotiation must know what they absolutely must
have, know where they are willing to yield to get a deal and be
willing to search together for common ground that each can later
defend back home as in its own interests.

Mediation in the WTO can only help. A dispassionate voice can
help both countries put aside their emotions and pin down for each
other precisely what they each need to be able to take back home in
a trade deal.

A neutral voice can help them discover common ground. A neutral
voice with a global perspective can help them locate that common
ground in a place that does not tread on the treaty rights of the
world’s many other trading countries.

The Chinese insist they are fulfilling their WTO obligations.
They avow their support for free trade and for the WTO. Why not put
their support to this test? For his part, Trump seems indifferent
to WTO obligations.

He has expressed nothing but disdain for the WTO while seemingly
doing his best to dismantle it with his illegal tariffs and other
willful trade actions. But if, in U.S. trade with China, Trump
really wants a trade solution, and not just a trade confrontation,
what does he have to lose by agreeing to mediation?

If he is not happy with the results, he can always denounce the
mediator.

James
Bacchus is an adjunct scholar at the Cato Institute, senior
counselor at the International Center for Trade and Sustainable
Development, and distinguished university professor of global
affairs at the University of Central Florida. His new book, from
Cambridge University Press, is “The Willing World: Shaping and
Sharing a Sustainable Global Prosperity.”